# compounded interest

• Mar 19th 2008, 12:49 PM
imstartingtohatethis
compounded interest
Find the effective annual rate if \$1000 is deposited at a 4.5% annual rate, compounded continuously.

here is what i have....
1000(1(.045/365))^365

is this right??
• Mar 19th 2008, 02:01 PM
TheEmptySet
Quote:

Originally Posted by imstartingtohatethis
Find the effective annual rate if \$1000 is deposited at a 4.5% annual rate, compounded continuously.

here is what i have....
1000(1(.045/365))^365

is this right??

Try this formula

\$\displaystyle P=P_0e^{rt}\$

so you would get..

\$\displaystyle P=1000e^{.045} \approx 1046.03\$
• Mar 20th 2008, 05:37 AM
mathceleb
Quote:

Originally Posted by imstartingtohatethis
Find the effective annual rate if \$1000 is deposited at a 4.5% annual rate, compounded continuously.

here is what i have....
1000(1(.045/365))^365

is this right??

Take out principal, and just focus on the interest rate. Go here:

Effective Annual Yield Rate of Interest

Enter 4.5 and Press the "Continuous" button. Your answer is 4.60%. Continuous compounding means that the balance in this instant is equal to the balance last instant with a continuously growing rate of interest. The effective annual rate is the actual rate of interest that you earn with compounding interest. Compounding interest is based on what method you use, in this case, you chose continuous. Press the other buttons on my site to see what the effective annual rate would be using other units of time. The more times per year you compound, the greater your effective rate is.

Let me know if you have questions.
• Mar 20th 2008, 07:04 AM
Brassy
The equation you need to use is:
Attachment 5453